Postponing the auction, in part, will allow the bankruptcy court more time to decide whether a company managed by Wellington developer and real estate investor Glenn Straub will be allowed to take part in the auction by submitting a so-called “credit bid.”

Straub, a former owner of the Palm House, has been involved with the project for years and claims his limited liability company, KK-PB Financial LLC, is owed more than $37 million via a “secured claim” on the property. That money stems from a defaulted first-mortgage related to a loan of more than $27 million on the property issued in 2013 to the Palm House’s ownership company, Straub said in declaration filed Sept. 12 in bankruptcy court.

The loan was made when Straub’s company sold the Palm House for $36 million in an August 2013 deal that included financing by the seller, according to court records.

But the bankruptcy attorney for the debtor, 160 Royal Palm LLC, has taken the position that Straub’s company has no legal right to participate in the auction based on its mortgage claim. Attorney Philip J. Landau’s Oct. 5 court filing says so many questions surround KK-PB Financial’s loan and mortgage — and Straub’s overall role at the Palm House and his relationship with indicted developer Robert V. Matthews — that the judge should bar the company from the auction.

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Construction ceased at the Palm House in October 2014, and the doors have since remained padlocked. Resulting legal entanglements have included not only the bankruptcy case but also pending criminal and securities-fraud trials for some of the Palm House’s players, including Matthews, who has pleaded not guilty to all charges against him.

The debtor company is managed by Cary Glickstein, the project’s former court-appointed receiver. Glickstein, a former Delray Beach mayor, ushered Palm House LLC into bankruptcy court last summer so a judge could clear the property of liens and other legal encumbrances to allow it to be sold outright. The idea, Glickstein has said, is that a new owner could complete the project under guidelines approved by the town of Palm Beach.

The bankruptcy court, in turn, approved a plan by which an entity controlled by The Related Companies would buy the property for $32 million unless the bidding goes higher during next month’s auction. Proceeds will be used to help pay back creditors involved in the Palm House, according to court records.

The Palm House's ownership company owes about $115 million to creditors, according to bankruptcy filings. The list includes dozens of foreign nationals who invested more than $40 million into the project through the federal EB-5 program in return for expedited visas for them and their families, court filings show.

In a September court filing, attorney Luis Salazar, representing Straub’s KK-PB Financial, reiterated the company’s position that it “is the lender and first priority lienholder in connection with a $27.4 million transaction involving the debtor’s acquisition of the Royal Palm Way property.”

That unpaid loan became the focus of a 2014 foreclosure action filed on behalf of Straub’s company but today remains on hold per a circuit judge’s order and bankruptcy rules.

“Restricting KK-PB’s right to credit bid will facilitate the debtor’s ability to sell the hotel through the proposed auction and administer the estate’s assets for the benefit of legitimate creditors through the Chapter 11 case,” Landau wrote. “Permitting KK-PB to credit bid, on the other hand, may derail the auction process and chill bidding.”

In a response filed Oct 17 to Landau’s objections, Salazar dismissed Landau’s claims and described his client as one of the victims of “a number of allegedly fraudulent and criminal acts” related to the Palm House. “The debtor,” Salazar wrote, “is now seeking to sell the mortgaged property without KK-PB Financial’s consent for far less than the secured claims against it.”

Prohibiting Straub’s company from taking part “as an active bidder will merely ensure that a multi-billion-dollar real estate player – The Related Group – walks away with the property with a lowball offer,” Salazar wrote.

Kimball is scheduled to hear evidence in the case at a hearing at 9:30 a.m. Dec. 6.

Matthews and Palm Beach real estate attorney Leslie R. Evans are awaiting trial in July in a Connecticut federal court on felony fraud and money-laundering charges related to alleged financial improprieties at the Palm House. Evans has pleaded not guilty to all charges. In the same case, Matthews and his wife, Mia Matthews, face one charge each of felony tax evasion, to which each also has pleaded not guilty. The Matthewses and Evans are free on bond.

Two other men — including real estate broker Gerry Matthews, a brother of Robert Matthews; and construction executive Nicholas Laudano — have accepted plea deals in the case and are to be sentenced next year.

The Securities Exchange Commission, meanwhile, has brought charges in a separate Palm House-related civil case that hinges on how the EB-5 money collected from investors was spent. The defendants in the SEC case are Robert Matthews, businessman Joseph A. Walsh Sr. and two of Walsh's companies. Matthews has denied those allegations and Walsh, who lives in Hong Kong, hasn't yet responded, according to SEC filings.